Reliance on Attorney Good Faith Rejected as Defense to Guilt May Mitigate the Sentence (8/22/11)

In United States v. Renner, 648 F.3d 680 (8th Cir. 2011), here, the defendant asserted a Cheek type good faith defense. The argument was that the defendant had relied upon his tax attorney. The tax attorney gave favorable testimony, but the jury did not accept the good faith defense. The tax attorney renewed his favorable testimony, by letter, for sentencing. The district judge apparently good faith related to the attorney consulation for sentencing.

The facts, highly summarized, were as follows: The taxpayer operated a business through a single-member LLC which was disregarded and treated as a Schedule C entity. The business he ran was to provide something like a debit card service for certain types of purchases. The business was not a bank and did not require that he do anything with his clients' cash deposits other than have a general obligation to apply them when the clients drew them. In other words, he could deposit them into the general business account and, herein lies the rub, use them in the interim as he saw fit. He did see fit and used them for various nonbusiness purposes (living expenses, etc.) The defendant was indicted for tax evasion for initially not filing and then filing delinquent returns omitted the income that he lived on from the customers' cash.

Renner's defense at trial was that no tax liability had accrued, and that he had relied in good faith on the advice of his accountant and tax attorney.  He testified about serious personal and medical difficulties during the relevant time period when the tax returns were due, that he employed professionals to prepare the tax returns at issue in the case, and that he relied upon their advice. Renner's tax attorney testified, in turn, that he advised Renner in preparation of the returns in question and that the returns were substantially true and correct. According to Renner's tax attorney, the money Renner took from CCI was not income, but rather a debt he had to repay, and thus did not have to be reported as income for tax purposes until such time as the funds were demanded by customers of CCI and Renner was unable to repay them. The tax attorney testified, however, that if the money had been stolen, rather than borrowed, "that might become a different sort of transaction. . . . But in this case, that wasn't the case." Renner's tax attorney stood by this position in a letter written to the court on Renner's behalf in support of a "minimal sentence," after the jury returned its verdict.

The jury convicted, presumably (as we must presume such jury action), rejecting the good faith defense as presented to it by the judge in the instructions.

On appeal, the taxpayer complained, inter alia, that the jury had not been properly instructed on the good faith defense. The Court rejected the argument, finding that the instructions were good enough.

The Court of Appeals then moved to the Government's appeal of the sentencing. The factors relevant to sentencing, in addition to the attorney's letter above in support of a "minimal sentence, were:"

At sentencing, the district court found an offense level of 22 based on a tax loss of approximately $1.13 million. The government advocated for a guidelines sentence of 46 to 57 months. The court found that Renner's Criminal History Category of II overrepresented the seriousness of his past behavior, and adjusted the Criminal History Category to I. The advisory Guidelines range for a tax loss of one million to two and a half million dollars and Criminal History Category I was 41 to 51 months. The district court granted Renner a downward variance and sentenced him to 18 months' imprisonment, three years of supervised release, and a fine of $7,500. The government did not seek, and the district court did not order, any restitution.

In effect, the Government argued that the trial judge at sentencing somehow relied upon the good faith defense that the jury had rejected in finding the defendant guilty. The Court rejected the argument as follows:

The government argues that the case must be remanded for resentencing because the district court abused its discretion as a matter of law, and thereby imposed an unreasonably lenient sentence, by granting a downwards variance from the Advisory Guidelines range of 41 to 51 months based on a fact -- good-faith reliance upon expert advice -- considered and rejected by the jury.

"When we review the imposition of sentences, whether inside or outside the Guidelines range, we apply a deferential abuse-of-discretion standard." United States v. Feemster, 572 F.3d 455, 461 (8th Cir. 2009) (en banc). In reviewing the sentence, the appellate court must first ensure that the district court "committed no significant procedural error," such as "selecting a sentence based on clearly erroneous facts"; and must then consider the sentence's "substantive "reasonableness" under an abuse-of-discretion standard. Gall v. United States, 552 U.S. 38, 51 (2007). In reviewing the reasonableness of a sentence outside the Guidelines range, the reviewing court must take into account the totality of the circumstances, including the extent of the variance, but must give due deference to the district court's decision that the 18 U.S.C. § 3553(a) factors justify the variance. Id.

It is, however, "improper for the judge in sentencing to rely on facts directly inconsistent with those found by the jury beyond a reasonable doubt." United States v. Bertling, 611 F.3d 477, 481 (8th Cir. 2010) [*19] (holding that the non-contradiction principle survived United States v. Booker, 543 U.S. 220 (2005)). Although a close question is presented, we believe the district court's sentence was not based on facts that contravened the jury's verdict. From the sentencing transcript it is clear that the district court fully accepted the jury's rejection of the good-faith defense, and the district court did not find otherwise. Rather, among the factors considered, the district court relied on the fact that Renner did consult with professionals, a fact the court believed distinguished Renner from other tax evaders who made no effort whatsoever to seek professional advice. The district court was entitled to consider that Renner at least consulted tax professionals, even if the jury did not believe that Renner met all of the requirements for a good-faith defense.

Our review of the sentencing transcript convinces us that the district court did not commit a procedural error, and that the sentence was substantively reasonable.

It is nice for us tax attorneys to have this reminder that out services can be valuable to mitigate the risk of conviction (if the jury were to credit a good faith defense) and as a mitigating factor in sentencing (if the jury were to not credit a good faith defense). This is, of course, an unusual set of facts.

Of course, the truth is that sentencing judges can and do consider in the sentencing equation factors that a jury may have passed on. For example, sentencing judges can consider acquitted counts in imposing an upward sentence (e.g., consider an acquitted count of tax evasion, to increase the tax loss that then increases the within guidelines sentence (or presumably Booker outside guidelines upward variance)). No "inconsistency" there. (At least that is the case law line, but it seems to me that there may be some inconsistency there.) And, a trial judge who has heard everything during the trial should certainly take those types of factors into consideration in determining the sentence under Section 3553(a).

And, beside all that, I am a bit surprised that the Government would have felt so strongly about the issue in the context of this case that it would have felt that an appeal was really necessary.  Perhaps the Government would not have appealed if the defendant had not and was just attempting to put some skin in the game on that taxpayer's appeal.